Composite contract treated as works contract; abatement allowed and service tax demand set aside on contractual evidence.

A composite contract involving supply of materials, civil construction, and installation and commissioning was treated as Works Contract Service because the record showed distinct material and construction components, supported by VAT payment evidence. On that basis, the contract was not a pure service arrangement. The claimant was also found entitled to abatement, since the contractual breakup and corroborative documentation showed that abatement was claimed for the civil construction element while CENVAT credit related to the installation component. The service tax demand, together with interest and penalties, was therefore held unsustainable and the impugned order was set aside with consequential relief.

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Issues: (i) whether the contract executed for NTPC was classifiable as Works Contract Service in view of the supply of materials, civil construction work, and erection and commissioning components; (ii) whether the appellant was entitled to abatement and consequential relief against the service tax demand confirmed in the impugned order.

Issue (i): whether the contract executed for NTPC was classifiable as Works Contract Service in view of the supply of materials, civil construction work, and erection and commissioning components.

Analysis: The contract in dispute was found to contain distinct components, including installation and commissioning of electro-mechanical equipment and civil construction of a pump house, with supply of materials also established. The appellant produced VAT-related documents showing payment of VAT on materials. In such a composite arrangement, the appropriate classification was held to be Works Contract Service.

Conclusion: The contract was held to be classifiable as Works Contract Service, and not as a pure service arrangement.

Issue (ii): whether the appellant was entitled to abatement and consequential relief against the service tax demand confirmed in the impugned order.

Analysis: The record showed that abatement had been claimed only for the civil construction component, while CENVAT credit was availed only for the installation and commissioning component. The later clarification from NTPC was accepted as reflecting the true contractual breakup, and the earlier adverse confirmation was treated as insufficient to deny abatement. The demand had been confirmed without properly accounting for the composite nature of the contract and the documentary evidence on record.

Conclusion: The appellant was held entitled to the claimed abatement and the confirmed demand of service tax, interest, and penalties was held to be unsustainable.

Final Conclusion: The appeal succeeded in full and the impugned order was set aside, with consequential relief as permissible in law.

Ratio Decidendi: A composite contract involving supply of materials along with construction and installation activity is to be treated as a works contract where the factual record supports that character, and abatement cannot be denied by ignoring the contractual breakup and corroborative evidence such as VAT payment and later clarification from the recipient.

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